The greatest joy for us at the symposium are the discussions with customers, both formal and informal.

It is extremely gratifying to see how our products add value and savings to the companies using them. For instance, testing only a few SKUs with Inventory Analyst safety stock recommendations helped one company discover that they were holding excessive amounts of inventory in some locations and led to quick savings. Many of our customers are running Inventory Analyst on a monthly or quarterly basis in order to make sure their inventory levels are set correctly.

Many companies have set up supply chain strategy groups and are not making any decisions without first running LogicNet Plus models. This is the essence of moving from static, occasional analysis, to dynamic, ongoing analysis and reflects the maturity of supply chain practices and the software capabilities that enable this. Despite this, some users still lament that their companies are working in silos, including use of local key performance measures (for instance for plants) that do not encourage an end to end supply chain approach and they hope to be leaders in driving for this.

Most of the companies using the software are global SAP customers with full implementations of SAP SCM, highlighting that our solutions are complementary to SAP SCM. With some work to create a data warehouse or universe for network design models or a light integration for setting safety stocks, companies benefit from having the right tool for the task at hand.

3PLs and consultants, who have always enjoyed the ease of use of our software, are leading in the use of the Carbon Footprint extension for their customers supply chain analysis. They also lavished praise on the new visualization and reporting capabilities that have recently been added to the products.

Finally, we received feedback and ideas for new features that we plan to use for the continuous improvement of the products and to make sure we maintain our lead in the market.

The day began with a presentation by Filippo Focacci, product manager for ILOG's planning and scheduling solution, ILOG Plant PowerOps (PPO). His presentation, "Factory Scheduling in the Food & Beverage and Pharmaceutical Industries" focused challenges, solutions and lean initiatives in these process industries.

Companies in this space face high demand variability, complex manufacturing processes, a focus on performance management and cost control, product mix changes and new product introductions/phase outs, and complex product quality issues. ILOG's PPO is designed to model key manufacturing constraints and to be used as a decision support system. Its strength is its optimization and performance analysis. It's not intended to replace current IT infrastructure but to augment it through integration with existing systems.

Filippo first covered an example from the fresh dairy industry, which moves its products from the cow through pasteurizers and fermentation, into storage and filling lines, into the finished product. The industry faces lengthy – up to day-long – cleaning-in-place cycles for its equipment, and these cycles are key to the industries process and are triggered by certain events (e.g., equipment sits idle for eight hours). Companies in the industry face high-demand variability, short shelf life of intermediate products and finished products, and relatively long lead times of three to four days. From a manufacturing efficiency point of view, companies in this space are looking to maximize resource utilization while minimizing waste and maximizing manufacturing predictability. Quality is a key issue, too, of course.

The company in question is using PPO for integrated planning and scheduling to find the right tradeoffs between scheduling goals (efficiency, changeover costs, etc.) and supply chain goals (e.g., balancing min/max days of supply). The tool lets the company also balance finished product and intermediate product planning. Planners can run various scenarios based on different constraints or goals and compare select KPIs across the scenarios. Benefits include the ability to have manufacturing and supply chain using the same tool. The tool let the company move from once-a-week planning to daily planning, improving their agility as a company. They saw 50 percent reduction in product waste and improvements in operational efficiency. The company rolled the tool out in Mexico, then Russia, then Argentina, which had fast-growing markets and were therefore both good case examples for the company and markets where increased efficiency could lead to greater sales and, ultimately, market share.

Filippo also ran through an example in the pharmaceutical industry and one that touched on the implementation of Lean within an enterprise.

Filippo talked about a scheduling requirement trend: While planners are looking for tools that better take into account manufacturing and supply chain reality, engineers want tools that generate more realistic plans. He suggested that using a tool like PPO lets both constituencies work off the same set of data.

Ronan O'Donovan, product marketing manager with ILOG Supply Chain Applications, talked about multi-echelon inventory optimization. Ronan discussed several case studies of the application of MEIO, including for planning inventory build-up for seasonal peaks in demand (a project that saw the company actually reduce inventory in the system thanks to increases at the plant level and reductions at the DC level).

Another example: a pharma company using MEIO to understand the potential for reducing its inventory at which stage of its production process. Importantly, this project helped the company's management understand the impact of successively higher fill rates on average working capital. This example is significant these days as companies experience tighter credit conditions and the need to optimize their current capital.

Bottom line lessons learned (to paraphrase Ronan): As supply chain professionals, we all know that we could reduce inventory if we could reduce forecast error or improve performance, and increasing service levels will increase inventory. But by leveraging tools for MEIO, you can quantify the impact of different scenarios and help management make the necessary tradeoff decisions around service levels, inventory and so forth.

Ronan also did a couple of quick demo presentations using ILOG's own Inventory Analyst and Supply Chain Analyst applications. The demos underscored the ability to create reports with the necessary graphics and illustrations that demonstrate the impact of various scenarios – again, a necessity when you're trying to make a business case for change based on the results coming out of the tool.

After lunch, we heard from Jon Walkwitz from one of the largest energy companies. He's since completed several network optimization projects using ILOG LogicNet Plus and ILOG Inventory Analyst. He leads the team's monthly sales and operations planning process.

Jon talked about several optimization projects that he'd worked on, including customer aggregation and product aggregation projects, with a goal of minimizing transportation costs out to the company's customers while keeping production costs neutral. He went into detail on the types of data that go into the modeling process and the level of complexity involved in the process. His point was that the level of detail available through using an optimization is not available when using a spreadsheet approach.

He noted barriers to achieving savings, such as "disaggregating and identifying actual direction from noise," "capital required to achieve savings" and "cost of doing business." He repeated how difficult the planning process can be, and you have to recognize that it will take a significant effort to collect, analyze and feed the model. You need a dedicated team to maximize efficiency, and you have to manage shareholder expectations and perceptions so that your internal customers don't come into the process believing that you can plug numbers into a black box, wave your magic optimization wand and produce millions in savings.

Jon also discussed the company's Inventory Analyst project and some of the barriers to achieving results in this sort of project, including conceptual difficulty understanding the project, which makes it that much more difficult to win stakeholder buy-in. He also noted that the models can be difficult to understand, and the models can help answer questions but don't necessarily inspire epiphanies – there's not necessarily an "easy button" that magically produces results. So you need to ensure that you hire the right team to drive the models and explain the results, including, if necessary, hiring a consulting team at least initially until you get comfortable with the process, in part to help you understand and explain the results.

After the break, we heard from Ben Fuqua, vice president of the management and supply chain consulting team within TranSystems Corporation.

In his presentation, Ben discussed the impact of the dynamic transportation environment, with case studies reviewing impacts on infrastructure and shippers. One theme that echoed David Simchi-Levi's presentation: Green can be compatible with efficient distribution.

Ben noted that the transportation industry is in transition, and supply chains are having to deal with rising transportation/logistics costs. Costs are being driven by, among other things, higher fuel costs and new fees envisioned for containers coming through ports. Volume is shifting between ports (e.g., increased traffic through East Coast ports), trucking bankruptcies are increasing, rail companies are investing in capacity, use of intermodal is increasing.

Against this backdrop, what are companies changing in how they operate in this environment? How are they balancing supply chain costs with customer-service levels? Ben presented case studies of companies balancing these issues, including a toy manufacturer, a home furnishings wholesaler, a durable goods manufacturer and a beverage manufacturer (see Ben's slides from his presentation on the Symposium Web site – the slides are due to be posted by the end of the Symposium on Friday). Lessons learned: each company's optimal network is going to be different, depending on their business model, but you won't be able to understand whether you have the optimal solution without going through the modeling process. And modeling can help you come up with a flexible solution that is going to help your supply chain adapt to the coming changes as the transportation industry continues to be in transition.

Dow began supply chain modeling in the 1980s, using linear modes with regard to feedstock selection and, to a limited extent, customer sourcing. They moved into production planning and distribution center planning in the 1990s using statistical modeling; into sophisticated sourcing analysis in the 2000s with mixed integer modeling; and into stochastic models today. Back in the 1980s and 1990s, the data collection was largely manual, but as they have become more integrated from a systems perspective, they have been able to reduce modeling time from months to days or even hours now. But they want to become even faster to be able to respond to rapid changes in raw material, transportation and other costs. This is in recognition of the fact that supply chain costs have become increasingly important – and increasingly recognized as important within the company.

In summary, Kurt noted that modeling is a requirement to compete today – "If you're not doing modeling, sell your stock in your company." You need to be able to model faster and more accurately, and you have to institutionalize the process to ensure success over time.

Hello, and welcome to this blog on the ILOG Supply Chain Excellence 2008 Symposium. For those who are not here in person in the next two days, I will try to bring the spirit of the conference virtually to you, highlighting and recapping the best portions, and passing along some of the key takeaways.

The conference opened this morning with a moment of silence in remembrance of September 11.

David Simchi-Levi with ILOG then took the stage to offer a brief introduction to ILOG and the company's software tools.

In going into his formal presentation for the conference, "Past the Tipping Point—The Impact of Oil Prices on Supply Chain and Business Strategies", David noted that many traditional business strategies – like lean, outsourcing and offshoring, just-in-time, and quick and frequent deliveries to reduce costs and improve efficiencies in their supply chain – all rely on one assumption – cheap oil. With analysts predicting that oil could resume its upward march and hit as high as $175 or more per barrel, supply chain executives be planning for the new era of high-cost oil.

U.S. logistics costs have increased remarkably over the last few years, to 10 percent of GDP. Transportation costs have increased by 47 percent over the past five years. At the same time, inventory costs have increased by 62 percent as longer lead times, increased safety stocks, larger shipment sizes and other factors have weighed. On the latter point, one strategy that companies have used in the face of higher transportation costs, larger shipment sizes (to take advantage of economies of scale), have had the effect of increasing inventory costs.

David noted that the cost of crude oil has tracked with the cost of diesel over the past four decades. Can we use information about the price of oil to predict the price of diesel at the pump, the cost of shipping and supply chain costs? Yes, the relationship is clear: in the U.S. market, every $10 increase in the cost of a barrel yields a 24 cent per gallon increase in the cost of diesel and an increase in the cost of transportation rates of 4 cents per mile. In Europe, the relationship is more stark, with a $10 increase in the cost per barrel yielding a 12-15 cent per liter increase, depending on the country. Those kinds of increases can easily turn a profitable company into an unprofitable one as transportation costs bite.

How are these cost-increases affecting network strategies? Companies are trading off oil price for inventory costs, facility costs, manufacturing costs and, most importantly, flexibility in the supply chain.

David cited case studies illustrating this point. For example, a manufacturer with country-wide demand and three manufacturing facilities (in the Midwest, the East and Mexico) needed to consider the impact of transportation costs in planning its network of distribution centers. Using optimization tools, the company was able to determine that its optimal strategy was considerable different at $75/barrel for oil than for $200/barrel. The company noted that the strategy did not change from $75/barrel up to $150/barrel, but $150/barrel was the tipping point – the point at which it made sense for the company to change its network strategy.

The point is not that $150/barrel is going to be the same tipping point for every company. In fact, every company will have its own tipping point, and to plan for increased cost of oil, each company must understand where its own tipping point is.

On the question of trading off oil price for flexibility, David cited the example of a European consumer packaged goods company. The company had to determine the best location for DCs and best allocation for product to their manufacturing locations. Again, the company "what-iffed" the best network at $100 and $200 per barrel. Initially the best solution was to add DCs in response to increased oil costs, going from 10 to 14 DCs as oil went from $100 to $200 per barrel, representing an increase of costs of 14 percent. But when the company also considered the tradeoff between manufacturing efficiency (each plant specializing in a few products) and manufacturing flexibility (each plant capable of producing a variety of products), at $200/barrel, the best solution for this company would be to add manufacturing lines to be more flexible – that would allow the company to add just one DC to the network, resulting in cost increases of 3.5 percent versus about 14 percent that would have resulted if the company had focused solely on adding DCs.

Concluding on this theme, David suggested that companies will shift from JIT deliver to better utilization of transportation capacity, with larger lot sizes shipped less frequently, and efficient packaging to improve truck utilization. He also sees companies moving from quick delivery to cheaper and sometimes slower transportation modes, such as from air to ground and from truck to rail; moving from dedicated to share resources through greater use of third-party carriers and consolidated warehouses; and less offshoring to reduce total landed costs. This latter point is already illustrated by companies like Sharp, which has recently started moving manufacturing facilities from Asia to Mexico to serve customers in North and South America.

And, finally, David touched on green issues. Surveys show that green is getting more attention in executive suites, in part as companies realize that a high carbon footprint is a sign of an inefficient supply chain. Wal-Mart, for example, has set significant goals for reducing the carbon footprint of its overall supply chain and is pushing those goals down onto its suppliers and service providers. Dell, another example, is changing transportation from air to ground using a network optimization tool, in the face of the fact that air generates seven times higher carbon emission levels than ground.

David also ran through an example illustrating that using optimization, companies have the opportunity to understand the optimal supply chain from a carbon footprint perspective and understand the cost of reducing their carbon footprint.

Welcome to our annual Supply Chain Excellence Symposium. It is great to reconnect with so many of our customers and build relationships with new ones. The theme of the symposium, Moving from Static to Dynamic Network Planning, is in many ways a continuation of the future trends discussions that took place at the 2007 event.

Last year we heard from industry analysts and thought leaders that trends, including outsourcing, offshoring and lean manufacturing that focus on reducing supply chain costs were significantly increasing the level of risk in the supply chain. We also learned through customer case studies that best-in-class companies were beginning to transform their supply chains into robust and resilient supply chains to help mitigate this risk. Finally, we explored strategic and tactical strategies to help our customers manage risk while creating value and improving supply chain performance.

This year, customers from Dow, Malt-O-Meal, MillerCoors, Transystems, Shell Lubricants and others will show how they are creating truly global operations; how their organizations are identifying new supply chain cost drivers; and how they effectively manage risks and optimize their supply chains from end to end, rather than by one product at a time. Through best practices, we will begin to see that companies truly are shifting from static to dynamic supply-chain strategies and have acknowledged that ongoing network planning is not only a trend, but a necessity.

Welcome to our annual Supply Chain Excellence Symposium. It is great to reconnect with so many of our customers and build relationships with new ones. The theme of the symposium, Moving from Static to Dynamic Network Planning, is in many ways a continuation of the future trends discussions that took place at the 2007 event.

Last year we heard from industry analysts and thought leaders that trends, including outsourcing, offshoring and lean manufacturing that focus on reducing supply chain costs were significantly increasing the level of risk in the supply chain. We also learned through customer case studies that best-in-class companies were beginning to transform their supply chains into robust and resilient supply chains to help mitigate this risk. Finally, we explored strategic and tactical strategies to help our customers manage risk while creating value and improving supply chain performance.

This year, customers from Dow, Malt-O-Meal, MillerCoors, Transystems, Shell Lubricants and others will show how they are creating truly global operations; how their organizations are identifying new supply chain cost drivers; and how they effectively manage risks and optimize their supply chains from end to end, rather than by one product at a time. Through best practices, we will begin to see that companies truly are shifting from static to dynamic supply-chain strategies and have acknowledged that ongoing network planning is not only a trend, but a necessity.